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Court comes to SpiceJet’s rescue, prevents its account from being marked down as NPA



Forum Gandhi |

Mumbai, April 30

Updated on:

Apr 30, 2022

SpiceJet was classified as SMA-1 in February by city Union Bank for an overdraft it had taken in 2014-15

SpiceJet has got a temporary injunction from the Gurugram District Court against being declared a Non-Performing Asset (NPA) by City Union Bank (CUB).

Last month, CUB had recalled the ₹100-crore loan given to SpiceJet. It has marked the carrier as a Special Mention Accounts (SMA) 1 because it has seen incipient stress. 

“Having perused the file and heard learned counsel for plaintiff, I am of the opinion that at this stage, plaintiff company has a case for grant of ex parte stay. Hence, till next date of hearing, defendant bank shall not classify the account of plaintiff company as NPA,” Rajeev Goyal, Additional District Judge-cum-Presiding Judge Exclusive Commercial Court at Gurugram said. 

BusinessLine had reported that SpiceJet was classified as SMA-1 in February for an overdraft it had taken in 2014-15.

Incipient stress

A company is marked as SMA-0 when principal or interest payment is not overdue for more than 30 days but account showing signs of incipient stress. If the principal or interest payment is overdue between 31-60 days, it is marked as SMA-1. If the principal or interest payment is overdue between 61-90 days, it is marked as SMA-2. After this, the account is marked as NPA. 
SpiceJet was to be declared NPA on April 30. However, the debt-strapped company moved a petition in the Exclusive Commercial Court seeking an interim relief, stating that it was being marked SMA “illegally.”

SpiceJet’s counsels claimed that declaring the company as a NPA would cause a “huge loss” and “irreparable injury”. Not only that, it would also impact the company’s “goodwill and credit in the business circles will be affected to the extent that it will not be able to do its business properly which will come to grinding halt,” it added. 

Payment defaults

In the Q3 of FY22, for the first time in five quarters, SpiceJet surprised the market with a standalone net profit of ₹23.3 crore compared with a loss of ₹57 crore same period last year. SpiceJet has defaulted on payments to multiple government bodies including Income Tax, GST, and Employee Provident Fund. Not only that, the debt-strapped company has also been tied in legal tussles with its lessors and aircraft manufacturing companies.

SpiceJet’s counsel had argued CUB has illegally recalled the overdraft facility extended to the airline without any plausible reason in spite of the fact that plaintiff never defaulted on making interest payments towards the said facility and had been paying monthly average interest of approximately ₹1 crore.

As per the order passed by the said court, SpiceJet’s counsels also accused that CUB is doing so “at the behest of one Kalanithi Maran who at the time when the above facility was extended, in view of Share Sale and Purchase Agreement (SSPA), had given an FDR of ₹100 crore as irrevocable security on 24.02.2015 which is not to be released or replaced except in accordance with SSPA,”

As per the order copy reviewed by BusinessLine, SpiceJet’s counsels alleged that now Maran is “trying to get the FDR amount encashed and with a view to create pressure upon the plaintiff, has got the overdraft facility recalled through defendant bank.”.”

The court has now issued a stay on the said matter till May 16 and summoned representatives of the CUB. 

Published on

April 30, 2022

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